Do you want to forecast by exception?

Segmentation goes beyond mere Pareto analysis; it requires a consensus-driven process with buy-in from both Sales and Supply Planning.
The 80/20 rule is handy, but only focusing on top sellers can miss risky, unpredictable SKUs that disrupt your supply chain. True segmentation means prioritizing based not just on volume, but also on demand volatility.

While supply planners often employ their own version of Segmentation using ABC classification based on planned stock levels, simply incorporating these classifications into demand forecasting may not yield significant benefits. A more effective approach to segmenting your SKU population involves considering two-pronged criteria: volume and volatility. You may also need to factor in additional criteria such as product life cycles and intermittency. However, quantifying volatility can pose its own challenges.

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Segment SKUs along two key dimensions:

  • High Volume, Low Volatility (The “Horses”)

These are your bread-and-butter products. They sell in large quantities, and the demand is stable.

  • High Volume, High Volatility (The “Bulls”)

These are high-stakes items. They drive significant revenue but are hard to predict.

  • Low Volume, Low Volatility (The “Sleepers”)

These items move slowly but predictably.

  • Low Volume, High Volatility (The “Problem Children”)

These items are the most difficult. They don’t sell often, but when they do, it’s unpredictable.

Measuring volatility isn’t always simple—seasonality and product lifecycles can distort the numbers. New products are unpredictable; end-of-life items often see erratic demand. Certain SKUs exhibit intermittent demand requiring special approaches.

Apply the same segmentation logic to customers. Not all customers are equal—focus on the signals from strategic partners and buffer against noise from one-off buyers.

There are additional strategies to enhance demand visibility and clarity within your S&OP process. These include a segmentation of your customer population using a similar method.

Join us for our upcoming workshop on Demand Planning for S&OP in March 2026, where we will delve into the intricacies of developing an effective segmentation process.

For the detailed agenda, please click here.

Reach out to us at services@demandplanning.net for further information.

Register today and prepare to revolutionize your approach to demand planning!